Overview
On January 2, 2025, the Federal Trade Commission (FTC) published 2025 HSR Form Updates: What Filers Need to Know. Essentially, the document is a summary of the 400+ page final rule, published at Federal Register: Premerger Notification; Reporting and Waiting Period Requirements, and readers are directed to it (referred to as the “Statement of Basis and Purpose” or “SBP”) throughout the “What Filers Need to Know” publication. In addition, those dealing with the new requirements are directed to contact the Premerger Notification Office (HSRHelp@ftc.gov) with questions about the new requirements.
Given the scope, scale, and complexity of the changes, this is a new world order for everyone facing an HSR filing, counsel and clients alike. While the new rules officially take effect Monday, February 10, 2025, filings made after 5:00 p.m. EST on Friday, February 7, 2025, must be made under the new rules. Given the date of this Update, it is clearly time to focus on the changes and to assess their impact and potential application to deals being worked on in the next month.
This Update further compresses the key changes to the HSR rules, but as the FTC suggests, filers are encouraged to consult the SBP for a more complete explanation of the new requirements. And it is important to keep in mind that the changes do not impact either which transactions require reporting due to meeting size thresholds or the timelines applicable to filings made. The new rules simply increase the quantum of information that must be included with a required HSR filing. Potential practice-related commentary is included where pertinent.
What You Need to Know
- The New Hart-Scott-Rodino rules take effect February 10, 2025.
- Given their scope and complexity, it is important to review what the Federal Trade Commission has identified as important aspects of the new rules, and to consider whether the upcoming changes require dialogue with clients concerning how they handle internal processes relating to acquisitions and disposition.
- This update highlights a recent FTC publication and provides some practice related comments to consider implementing.
“What Filers Need To Know”
Acquiring and Acquired Parties will file separate forms, which is a first. The January 2 publication contains links to the new forms and the instructions for each.
Generally, Acquired Persons have fewer information requirements than Acquiring Persons, and filers would be wise to become familiar with the differences to avoid spending unnecessary time gathering unnecessary information. In addition, for certain acquisitions which fall under 16 C.F.R. 801.30 – specifically, those which do not result in control, do not involve an agreement between the parties and do not involve the Acquiring Person obtaining ability to alter the board or management of the Acquired Person – reporting requirements are significantly less and should be reviewed closely.
Practice Comment: Not every deal is so fortunate, however. Transactions involving parties with existing business overlaps or supply relationships will require more detailed disclosures compared to those without such prior overlaps or relationships. The existence of those aspects is likely to be where the rubber hits the road in terms of the additional time devoted to and expense incurred in assembling the required HSR filing.
A. The important categories of enhanced document requirements can be summarized as follows:
- Transaction Agreements
While historically most HSR filings include a definitive agreement outlining all the terms, filing on a letter of intent or similar document was previously possible. Under the new rules, however, for transactions without a negotiated final agreement, parties must submit a dated document which provides details about the scope of the intended transaction. For example, a term sheet or the most recent draft of the agreement would suffice. The days of simply filing on a letter of intent, expression of interest or other similar writing, which often quite intentionally did not include extensive detail, are over, and filers must now include specific information about the transaction, namely:
- the identity of the parties;
- the structure of the transaction;
- the scope of what is being acquired;
- calculation of the purchase price;
- estimated closing timeline;
- employee retention policies; and
- transaction expenses or other “material terms.”[1]
Practice Comment: Whether the parties can provide such information at this stage seems unlikely, e.g., often the “structure of the transaction” is fluid, and the “calculation of the purchase price” is subject to perhaps as-yet unknown parameters. Those needing to file pre-definitive agreement may be wise to discuss the issues anonymously with the PNO staff.
- Transaction Rationale
Except for the 801.30 Transactions identified above, each filer must provide a strategic rationale for the transaction, and the filer must identify each document that discusses or confirms the rationale, highlighting any inconsistencies in those documents as against the submitted rationale. It is permissible to cut and paste those portions of the submitted documents that discuss the rationale into the narrative rationale itself. The filer may also summarize and reference those portions of the submitted documents that discuss the rationale. If a diagram of the deal structure exists (that is, one need not be created), the Acquiring Person must submit it with the filing.
- Transaction-Related Documents from the “Supervisory Deal Team Lead”
Well-known to HSR practitioners is the old regime requirement to identify and submit 4(c) and 4(d) documents – defined as documents prepared by or for officers or directors detailing the proposed transaction with respect to market shares, competition, competitors, markets, the potential for sales growth or expansion into product or geographic markets and CIMs and similar documents. Under the new rules, filers must now submit these types of documents prepared by the “supervisory deal team lead” – defined as the individual primarily responsible for supervising the strategic assessment of the deal.
Practice Comment: Depending on the client, the “supervisory deal team lead” may be the CEO or a board member, and the new rules make it clear that to be a supervisory deal team lead, a person would not otherwise qualify as a director or officer. Some clients have development teams for deals that do not include an officer or director in the lead and may reconsider their approach to control the extent to which it creates appropriately avoidable document production requirements.
- Transaction-Related Draft Documents Shared with a Board Member
Even if a transaction-related document is not considered final but was shared with even just a single member of the board, the document must be submitted with the filing, as it is now considered as final in that person’s hands. Importantly, however, this new requirement does not apply to documents containing similar information, but which are produced in the ordinary course of business and not specifically in contemplation of the transaction. In that case, only the final version of the document must be submitted if it exists at the time of filing.
Obviously, this new requirement will require process-oriented review of interactions between clients and counsel with respect to the circulation of draft documents among the deal team. Importantly, however, if a board member only has access to draft documents via a collaborative drafting tool or platform, literal compliance could result in the inclusion of far too many copies of the same non-final document; therefore, filers are permitted to submit a statement of noncompliance which explains that the board member had access to a document which is not being produced.
Practice Comment: Again, considering the requirements of the new rules, counsel and their clients would be wise to review the historical and internal processes employed when making acquisitions to determine whether restructuring those processes is appropriate and necessary to ensure both efficiency and compliance.
B. Other categories of newly required information are:
- Minority Ownership and Officer and Director Information
Filers must identify minority investors in entities related to the transaction under certain conditions. The Acquiring Person must disclose minority shareholders of the acquiring entity, entities that directly or indirectly control or are controlled by the acquiring entity, and entities that have been or will be created to complete the transaction. The Acquired Person must disclose minority shareholders of the acquired entity (and any entity directly or indirectly controlled by the acquired entity), but only if that minority shareholder is a rollover investor.
For limited partnerships, filers must identify limited partners (not only general partners) with rights to influence the boards of directors or management of entities related to the acquiring entity.
In addition, the Acquiring Person must identify individuals who serve as officers or directors of entities within the Acquiring Person who also serve as officers or directors of entities in the same industry as the target.
Practice Comment: Some commentators have opined that this aspect of the new rules may provide a disincentive to private equity activity and the use of limited partnerships, for example, due to the new requirement of identification of individuals in certain circumstances. Whether this bears out in practice remains to be seen, but the concern is real.
- Competition, Overlaps and Existing Relationships
All filers must now briefly describe the main categories of products and services they offer. And all filers must now go beyond disclosing the previously required NAICS code overlaps and identify competitive overlaps and supply relationships between the parties with specificity. To the extent filers offer products or services that do or could compete, they must describe each product or service based on descriptions from documents created in the ordinary course of business. Additionally, filers must provide sales data from the most recent year, a description of all categories of customers who use the product or service, and a list of the top ten customers in the most recent year along with the top ten customers for each customer category provided. If there are no such issues it should be so stated.
Where the Acquired Person buys or sells products, services or assets to the target or one of the target’s competitors, or if the target purchases or sells those products from or to a competitor of the Acquiring Person, those things must be listed and described to the extent they produced more than $10 million in revenue in the most recent year. Identification must be based on the filer’s own knowledge and belief as to whether another business uses the product, service, or asset, to compete with the other party. For all supply relationships, filers must provide sales or purchase data for the most recent year, a list of the top ten customers (or suppliers) for the most recent year and a description of the filer’s supply, purchase, or licensing agreement.
Interestingly, the “What Filers Need to Know” document states that these requirements are “not intended to be onerous or involve legal analysis; there is no requirement…that filers hire counsel to conduct an antitrust analysis” – while also reinforcing the admonition that filers (which, by reasonable interpretation, includes their counsel) should not “exchange information with each other for the purpose of responding to the Overlap and Supply Relationships Descriptions.”
Practice Comment: In your authors’ experiences, that kind of involvement by and dialogue between counsel in the routine convention of HSR practice is necessary. It allows parties to identify and analyze potential competition concerns which has the double benefit of preparing them to not only deal with issues regulators may raise, but also to assess what risk exists and how to subsequently parse the consequences and timing of regulatory inquiry in, for example, a “hell or high-water clause.”
- Business Documents – Plans and Reports
If competitive overlap or supply relationships exist, filers must also provide high-level strategic business documents produced in the ordinary course of business that were not created to analyze the transaction. While like the prior 4(c) requirement, it eliminates the potential for sales growth or product or geographic market expansion. The requirement includes documents provided to the CEO or board of each party and all entities they control or are controlled by. While only documents produced within one year of filing are required, for documents provided to the board, all responsive documents prepared or modified within one year of filing must also be submitted. For documents provided to the CEO, only those prepared at regular intervals (other than on a weekly or monthly schedule) must be submitted.
Finally, all Acquiring Persons must identify if they have, or had within one year of filing, existing agreements with the Acquired Person – such as leases, licenses, MSAs, operating agreements, supply agreements, agreements containing non-compete or non-solicitation terms, or any other kind of agreement, identified as “other.”
Practice Comment: These requirements may cause clients to revisit what amounts to their internal competitive intelligence efforts, reports, and documentation. Clearly, the enforcement agencies would like visibility into what the parties’ views of their markets are irrespective of any particular transaction. Given the possibility of overstatement and hyperbole in such competitive intelligence documents, revisiting the process and timing of their internal production may be warranted.
- Author Information
For submitted documents that identify an existing business relationship between the merging parties, filers must provide the author’s name and title. If the author is a third party, the filer must also provide the name and title of the individual within the filing person who supervised the preparation of the documents.
- Other Notable Changes
The FTC makes note of several other changes of note including the need for translations into English, disclosure of prior acquisitions (with a 5-year lookback and a $10 million threshold), the reporting of subsidies received from foreign entities, and whether any international antitrust filings are being made for the transaction.
Conclusion
The new rules, no matter how often or cogently they are restated, condensed to essentials, or laid out as a summary of a summary, are bound to create questions if not confusion. Consultation with the Premerger Notification Office staff seems inevitable. Similarly, it would be wise for counsel to suggest to some of their more acquisitive clients to do a tabletop exercise that reviews the way certain ordinary course documents are prepared, deal-related documents are produced and shared, and acquisition development team are structured, among other things.
If you have any questions about this alert, please reach out to the authors.
[1] “Material terms” is not defined and seems to be left to the judgment of filers and their counsel.
